{"id":1004033901,"date":"2011-11-03T09:21:17","date_gmt":"2011-11-03T17:21:17","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004033901"},"modified":"2020-04-07T11:38:17","modified_gmt":"2020-04-07T19:38:17","slug":"law-policy-the-adventures-of-valuation","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/law-policy-the-adventures-of-valuation\/","title":{"rendered":"Law & Policy: The Adventures of Valuation"},"content":{"rendered":"

By Stewart Mandell, Esq.<\/strong><\/p>\n

Can you visualize how your tax appeal attorney would address an assessor\u2019s sales-comparison based property valuation? What if your attorney were Sherlock Holmes?<\/p>\n

Holmes sits at his desk as Watson enters. \u201cHolmes, old boy, look at the assessor\u2019s valuation report on the Franklin Office Center, a multi-tenant office building. The assessor\u2019s flawed cost approach is no surprise, but who would have expected a comparable-sales analysis with five sales to justify a sky-high value as of Jan. 1, 2010?\u201d<\/p>\n

Holmes chuckles as he quickly digests the report. \u201cThere is nothing here that should trouble you, my dear friend. Our evidence and my cross examination of the assessor will result in a compelling closing argument and a sizable assessment reduction.\u201d<\/p>\n

\u201cYou already know how you\u2019ll address these sales?\u201d asks Watson with astonishment.<\/p>\n

\u201cWhy, of course,\u201d says Holmes, rising. \u201cHere\u2019s how I\u2019ll summarize this in my closing statement: Your Honor, Sale No. 1 obviously is not a valid comparable, given the October 2007 date of sale. As our appraiser testified, from the market\u2019s peak in October of 2007 until January 2010, office building values in the area declined more than 40 percent.<\/p>\n

\u201cYou could make a market condition or time adjustment for that reason, and it would be something in excess of 40 percent. But the sale should be rejected because 2007 market conditions were so extremely different from what existed on Jan. 1, 2010. This sale is no more useful than one where the seller exercises an option to buy that was part of a lease agreement negotiated five years earlier.\u201d<\/p>\n

Selecting his favorite meerschaum from the mantelpiece, Holmes continues: \u201cSale No. 2 must be rejected on the same grounds as Sale 1. Initially, the assessor made much of the fact that this sale closed on Sept. 16, 2008, which was after the start of the Great Recession, the Bear Stearns collapse and Lehman Brothers\u2019 bankruptcy filing.<\/p>\n

\u201cOn cross examination, however, the assessor admitted that the parties executed the purchase agreement on March 7, 2008. That was well before both the valuation date and the point when the values of office buildings plunged like Professor Moriarty descending the falls at Reichenbach.\u201d<\/p>\n

Having filled his pipe, Holmes turns toward the window.<\/p>\n

\u201cSale No. 3 is irrelevant,\u201d he resumes. \u201dOh, it closed during the last quarter of 2009, near our valuation date, but there is one detail the assessor overlooked: This property was 100 percent leased to one of the 10 largest companies in the country, with 10 years remaining on the lease term. The assessor valued the landlord\u2019s interest, also known as the leased fee, and not the fee simple interest. The rent that produced this sizable sale price is well above Jan. 1, 2010, market rents. And in our state, valuation using a leased fee interest and above-market rents is unlawful.\u201d The strike of a match punctuates this last revelation.<\/p>\n

\u201cSale No. 4 not only shares the fatal flaw of Sale 3, but is even less defensible because it is a sale of a leased, built-to-suit property. Here, one of the country\u2019s most successful companies had arranged for construction of a facility to its exact specifications, and ultimately an investor acquired not just the property but also the tenant\u2019s 35-year lease.<\/p>\n

\u201cOf course, the rent is based on the contractor\u2019s cost and is unrelated to current market conditions. Not only was the transaction purely financial but as our appraiser\u2019s empirical data showed, built-to-suit properties such as this include significant costs that will not increase the property\u2019s sale price when subsequently sold.\u201d The atmosphere in the room begins to resemble the fog outside the window.<\/p>\n

\u201cSale No. 5 is a sale-leaseback transaction. Town of <\/em>Cunningham<\/em> v. Property Tax Appeal Board, <\/em>a 1992 Appellate Court of Illinois decision, is one of a number of decisions that confirm why this sale is irrelevant.<\/p>\n

\u201cIn the Cunningham case, the property owner initially listed the property with a sale price of $6 million, as well as a leaseback provision that would pay annual rent ranging from $200,000 to $250,000 for a term of 10 to 15 years. Ultimately, the property sold for $9.3 million plus a 15-year leaseback, with annual rent at $615,000. Obviously, the sale price and lease terms were directly related, with a higher rental stream producing a higher sale price. As the court concluded, this was a financing transaction, and the purchase price was unrelated to the property\u2019s market value.\u201d<\/p>\n

Holmes bends to address his companion, seated beneath the swirling cloud. \u201cIn short, Your Honor, the assessor\u2019s sales-comparison approach is not worth the paper on which it is written.\u201d<\/p>\n

Clearly, if owners are to achieve fair property tax valuations, they and their attorneys must dig deeply into comparables used by assessors. And that is elementary.<\/p>\n

Stewart Mandell is a partner in the Michigan law firm Honigman Miller Schwartz <\/a>and Cohn L.L.P., the Michigan member of the American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at slmandell@honigman.com.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

How your tax appeal attorney would address an assessor\u2019s sales-comparison based property valuation — if he were Sherlock Holmes? By Stewart Mandell, Esq.<\/em><\/p>\n","protected":false},"author":1269,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[37301],"tags":[],"class_list":["post-1004033901","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"yoast_head":"\nLaw & Policy: The Adventures of Valuation - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/law-policy-the-adventures-of-valuation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Law & Policy: The Adventures of Valuation\" \/>\n<meta property=\"og:description\" content=\"How your tax appeal attorney would address an assessor\u2019s sales-comparison based property valuation -- if he were Sherlock Holmes? 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